Panel: Toughen China Policy

Beijing Makes Manufacturing Gains, Sees U.S. as Vulnerable

By Glenn KesslerFriday, July 12, 2002

A bipartisan congressional commission warns that China is making
dramatic economic and strategic advances against the United States,
requiring a much tougher response to ensure compliance with trade laws
and to prevent the spread of weapons of mass destruction.

A 200-page report from the U.S.-China Security Review Commission,
scheduled for release Monday, is noteworthy for its skeptical view of
Chinese intentions and the near-unanimous endorsement of that view by
members of the panel.

The report asserts that the Chinese leadership often portrays the
United States as a "powerful protagonist and overbearing bully"
but also views the United States as a declining power with exploitable
military vulnerabilities. The report concludes that, despite the
advent of China's entry into the World Trade Organization, the U.S.
trade deficit with China will continue to worsen.

The report also determined that despite the popular perception of
China as mostly a manufacturer of toys and other simple products, the
Chinese have made huge strides in the production of advanced goods.
The United States runs a trade deficit with China in a majority of the
items on the Commerce Department's advanced technology product list,
the report said, warning that a growing reliance on Chinese imports
might eventually "undermine the U.S. defense industrial base."

The commission also warns that China is one of the world's leading
sources for missile-related technology and nuclear materials for
terrorist-sponsoring nations, presenting "an increasing threat to
U.S. security interests, in the Middle East and Asia in particular."
While China has made numerous multilateral and bilateral commitments
to stop proliferation, "despite repeated promises [it] has not
kept its word," the report said.

The report, the product of nine public hearings involving 115
witnesses, was the first produced by the commission, which was evenly
divided among Democrats and Republicans. It was adopted 11 to 1. A
copy of the report was obtained yesterday.

The report has stirred concern among business executives, who fear
it could spur congressional efforts to limit business investment and
trade with China. The lone dissenter, William A. Reinsch, a Clinton
administration undersecretary of commerce, noted: "The commission
majority has bent over backwards to avoid describing the Chinese as a
'threat;' yet the belief that they are permeates every chapter."

Congress created the commission at the end of 2000, when U.S.-China
relations were at a low point. In the past year, especially after
Sept. 11, relations have improved, and it is unclear if the report
will generate renewed furor about Chinese intentions.

The report urges an "immediate review and overhaul" of
U.S. sanction policies, including giving the president authorization
to invoke economic sanctions against foreign nations that proliferate
weapons of mass destruction or related technologies. The report also
recommends the use of financial sanctions, such as denial of access to
U.S. capital markets to companies involved in proliferation.

"The toolbox of incentives and disincentives needs to be
broadened," said commission Chairman C. Richard D'Amato. "Quite
clearly, jawboning does not work in this area."

The report notes that the Chinese government and state-owned
enterprises have raised more than $40 billion in the international
capital markets in the past decade, including $14 billion in the
United States in the past three years. But the report said the U.S.
government lacks ways to monitor national security concerns raised by
this development, requiring beefed-up disclosure and reporting
requirements for Chinese companies at the Securities and Exchange
Commission.

The commission was formed in part to provide a congressional
imprimatur to U.S.-China policy, which many lawmakers believed has
been dominated by the White House since Henry A. Kissinger, as
national security adviser, secretly traveled to Beijing in 1972 to
reopen relations. "We hope to build some kind of common ground in
the Congress as we go forward," said D'Amato, a former foreign
policy aide to Sen. Robert C. Byrd (D-W.Va.), who had pushed for the
commission's creation.